Should You Choose Student Loan Default?

I read a controversial op-ed piece recently from a writer who made the conscious decision to default on his student loans. The main reason was to pursue a low paying career he was passionate about rather than take a job he loathed to afford paying back borrowed money. His rationale was that if everyone followed suit then universities, lenders, and the government would have to change the policies regarding student loan repayment or make higher education more affordable or even free to all. While he makes some interesting points, I don’t think anyone should choose student loan default, and here’s why.

No One Forces Students To Borrow Money

First of all, humans of sound mind possess something called free will. Obviously in some parts of the world, choices are fewer and further between, but here in the U.S., no one can put a gun to our heads and make us borrow money. This is true of mortgage, credit card, or consumer debt. While people like to go on and on about evil lenders or trickery employed by credit companies, we are not lemmings. Somewhere along the line, personal responsibility has gotten lost. Everyone has the power and obligation to educate ourselves about pros and cons of borrowing money.

I do agree that kids in their late teens often don’t have the financial background to make decisions that will impact their finances for the next 30 years. I do believe colleges and parents should do a better job of showing what a future looks like with a $25K a year job and $100K in loans, but that doesn’t mean everyone should be off the hook for taking loans.

If you can’t afford college and don’t know if you’ll make any money after graduation, then it’s time to look for a cheaper school or work your way through. Even if it takes more than four years to graduate, it’s better to work a crappy job to pay for school than to have to work a crappy job for life to pay back loans.

That being said, if you do borrow up to your eyeballs and have no chance of scoring a good paying job in your field, you better believe I think you should take a job, even one you hate, to pay back debt. It doesn’t have to be forever, and there is certainly no law that says you can’t pursue a passion in addition to a full time job. I just don’t think it’s OK to skip out on responsibilities because of bad choices in the past.

Student Loan Default Never Goes Away

Choosing to default on student loans has life time consequences. The fellow who wrote the article said that lenders were still trying collect 30 years later. Here are a few things to consider before choosing default.

The federal government can use wage garnishment without a judgment if you don’t pay back student loans.

What Should You Do If You Can’t Afford Student Loan Payments?

Make sure you are on top of personal finances. If you are still eating out, watching ESPN on Dish Network, and taking annual vacations, there is room to cut spending. First start really tracking your money, either on paper or with a site like Personal Capital or Mint. You might be able to save several hundred dollars a month from tightening your belt.

Find a way to bring in more money. If you’ve cut expenses to the bare bone, it’s time to bring in more income. There are a million ways to make more money. Yes, extra work takes away freedom and can mean less sleep or time with loved ones. It might not be pretty to deliver pizzas or clean someone else’s toilet, but a bit of sacrifice now is worth much more than a lifetime of fighting debt collectors and poor credit.

Talk to your lender. Government loans have many options for repayment, including income based payments and consolidation. While these options will increase the length of the loan and cost more in interest, they are much better than default. Private lenders don’t offer as many options, but some private loans can be put into forbearance or on a graduated repayment plan that increases with your income. The best way to explore options is to call your lender and explain the circumstances, painful as that might be. Ignoring the problem makes things worse over the long term.

I feel for those struggling with college debt, but I don’t think it’s OK to choose to default on student loans. While it’s important to express your opinions about the student loan burden that does exist, the long term consequences of student loan default are too great to endure for making a statement.

If all else fails and you end up defaulting on your student loans your credit score will be affected. As you may know, having a good credit score is extremely important when it comes to qualifying for loans, homes, credit cards and even jobs. If you do find yourself in defaulting on your student loan and your credit score drops then credit repair may be an option. You can either trying repairing your credit on your own or you can use a credit repair service that you see fit.

Would you default on student loans to pursue a low paying job you were passionate about? Whose fault is it that the student loan burden is so high in the U.S.?

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13 comments

I’ve heard about this guy, but haven’t read his article about why he did it. That being said, I could not agree more with you Kim. I could understand struggling with the repayment because he genuinely didn’t have the money or something like that. But, to just choose to default is a completely different story and sends the wrong message in my opinion. While change is something that should be looked at, this is the wrong way to go about it.

Education obviously needs to start early. Parents and teachers need to quit telling kids to follow their dreams at any cost. So many people get become so blinded by the idea of college that they fail to work out any of the logistics at all.

No never. Just because it isn’t “fair” doesn’t mean you still have to do what thousands of other people are doing to make it work. Don’t bite the hand that feeds you. On the other hand, I agree more education is necessary of all that goes into student loans so people can make more informed decisions.

“Yes, extra work takes away freedom and can mean less sleep or time with loved ones. It might not be pretty to deliver pizzas or clean someone else’s toilet, but a bit of sacrifice now is worth much more than a lifetime of fighting debt collectors and poor credit.”

I can see how such a measure could backfire horribly. First of all, losing sleep is potentially dangerous. If that results in a bad accident or a health problem, you won’t come out ahead financially. In the example of delivering pizza, there’s also the risk of being a victim of violent crime, the risk of eating too much pizza yourself (again, possibly causing a health problem), and the wear and tear on your car. Any of those things could easily cost you much more money than you stand to earn.

I am a firm believer that if you borrow the money you should pay it back. I’ve been reading some of these crazy articles too lately and I think that its another form of theft. Well I guess in this case the thief is well educated.

Loan default, in my harsh opinion, is theft. A person asked the lending institution for money and promised to repay it. If they choose not to repay, they have stolen the money from the lender. I don’t see lenders going out onto the streets and dragging customers into their institution and forcing them to borrow money. The borrower obviously gets value from the loan, so they should repay it. The only exception is extreme medical hardship. And if anyone ever defaults for any other reason, all income tax refunds should be applied to the unpaid balance and the people who default should never be able to get unemployment, welfare or any other government assistance until the debt is paid.

I read the article, and I came away mixed. I do think that we need a huge overhaul in education costs. Maybe everyone defaulting would wake up politicians. Or it would just be another cause of a government shortfall, making other programs get cut. Like social welfare programs.

Also, yes this guy was rationalizing. You can’t go to school to be a writer and then be outraged at the low pay/lack of interest in a flooded market. As one comment pointed out, he went to graduate school. Surely by then he would have known it was a bad investment.

I don’t think he gets to determine what society should and shouldn’t value financially.

The final thing that irked me was that he is apparently doing decently now. He’s no longer unable to make payments. So… pay up, dude.

In all, it was an interesting point of view, but I really only (partially) agreed with one point: we can’t *let* universities keep charging these rates. Even at University of Washington, they got a coach who they were going to pay $1 million a year. Schools, especially state schools, shouldn’t have enough money to offer that kind of pay. Just… no.

The problem is, 17 year olds don’t understand the implications of what they’re signing on for. They also don’t understand the reality of college choice. Community college is not a failure, it’s smart! I feel like a course on loans and debt should be required for anyone signing up for a student loan.

I personally wouldn’t default. I do however think that the government charging insanely high ratesis wrong. When I took out my loans, some were higher because of my step-dad’s income, none of which I received. My grad school loans were lower. I consolidated, apparently when rates were high and they averaged all my rates. Well at 6.875%, my principal balance is the same after almost 4 years of payments, while banks were borrowing money for free. It’s not right to use students as profit centers.

From what I’ve read, discharging student loans in bankruptcy is not always as difficult as is perceived. You probably couldn’t declare bankruptcy just to get rid of your student loans, but if you’re in a position to be considering bankruptcy even apart from student loans, adding them is likely worth a try. The belief that it’s impossible to do something can be a self-fulfilling prophecy, collectively as well as individually. You hear about the tiny number of people who have succeeded, but then you have to consider how many have actually tried.

At 8.25%, I paid on-time for 4.5 years until I lost my job – and whoa did they come at me hard after my first late payment – by calling my co-signer, myself along with friends who I had not spoken to for years trying to get a hold of me (supposedly).

I paid Navient what they were asking + penalty and interest and they backed off immediately until the same thing happened the next month. These guys are sharks. I had gotten so fed up with them reporting 30 day lates as 60 days lates that I couldn’t get them to budge.

I called Pyramid Credit Repair and they were able to challenge the late payments and take off a couple collection accounts. Long story short, try not to be late because they’ll come after you like a hammer train.

Disclaimer

I am by no means a financial expert. While, I have had extensive training in vision and eye health, I have had no formal financial education. All content published here is my own personal experience or opinion. Please research your own financial decisions and act accordingly. This blog does have financial relationships with some of the services and websites that are promoted. Eyes on the Dollar is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.